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IMGSY: CCT or not to CCT

In a surprising turn of events, on October 22nd, 2010, the Government of India in departure from its usual torpidity approved the introduction of Indira Gandhi Matritva Sahyog Yojana (IGMSY), demonstrating the commitment of the government to arrest problems of poor health and nutritional deficiency, captured most recently in the Global Hunger Index, which ranked India 67th out of a total of 84 countries. The scheme which is to be implemented on a Pilot basis in 52 district of the country offers cash incentives to all pregnant and lactating women above the age of 19 years for the first two live births. The only exceptions are central and state public sector employees who have been excluded from the purview of the scheme as they are entitled to paid maternity leave.

Under this scheme each pregnant and lactating woman is to receive Rs 4,000 in three instalments between the second trimester of pregnancy until the child is six years old. Each beneficiary is required to open an individual bank account (if she already does not have one) to be liable for receiving benefits. Cash transfers are designed as incentives which are to be conditional upon the fulfilment of specific conditions relating to mother and child health care. The scheme is to be implemented through the Integrated Child Development Services (ICDS) system and will be supported by additional contractual staff. Anganwadi workers and helpers will receive an incentive of Rs 200 and Rs 100 respectively after all the due cash transfers are made.

In the case of IMGSY which is based on self selection, equity concerns may be offset if the benefits of the programme are accrued by richer households as opposed to poorer ones.

While the potency of such measures as the GHI highlights is indisputable, the particular method adopted for improving maternal and child health through cash based incentives is representative of a wider trend, which needs to be evaluated in some detail. The arguments in favour of cash transfer programmes have generally been based on three main conceptual premises.

In the context of underlying market failures in the economy, CCTs have been touted as being useful in improving efficiency. According to proponents, CCTs can play an important role in ensuring that individual decisions reflect both societal and individual preferences. Market failures arise when private information about the nature of certain investments and their expected returns may be imperfect or when human capital investments made by the poor may be privately optimal but socially sub optimal. The first type of market failure can be related to situations involving the adoption of new technology (such as institutional deliveries), benefits are accrued once the attributes of a new technology are known to the community; learning about the new technology involves costly experimentation. Initially communities may be unwilling to invest their time and resources in the technology, leading to a free rider problem. Introducing a CCT then in this context such that conditionalaties on cash transfer are linked to the use of the particular technology, such as institutional deliveries can encourage the communities to invest in the technology which they were otherwise would not have been tempted to invest in. Market imperfections of the second type relate to instances when pregnant women are dissuaded from seeking professional health services because the cost of seeking such assistance is higher than relying on non institutional care. By lowering the opportunity costs of professional heath services, CCTs like the IMGSY’s offered to pregnant women who seek professional care and fulfil certain specific conditions, encourage those who under invest in health to increase their investment and thereby augment social welfare more than an unconditional cash grant.

A second rationale for CCTs relates to equity and redistribution. CCTs can be used as screening devices to target populations when individual characteristics are not easily observable. In cases where poor are hard to identify and budgets are small it is necessary to screen beneficiaries. Conditionalities, in such cases when appropriately chosen can act as screening mechanisms which induce targeted groups to participate in the programme while discouraging the participation of non targeted individual. The idea behind successful screening is straight forward; the benefits of the cash received exceed the cost induced by the conditionality for one group but not for another. In the context of the IMGSY, the cash incentives of Rs 12,000 appear to be relevant for targeting the benefits to select beneficiaries particularly the economically weaker sections for whom the benefits of the cash incentives exceed the costs incurred.

The third justification of CCT relates to political economy of funding redistribution. Conditioning cash transfers on compliance with certain socially accepted behavioural practices may increase the political support for them making them feasible or better endowed. This is based on the rationale that elites are not entirely self regarding. It is possible for instance that tax payers are more prepared to pay transfers to those who are seen to be helping themselves than for recipients of unconditional transfers who are viewed as being lazy and careless. Alternatively, unlike Unconditional Transfers, CCTs can be seen not as plain social assistance but rather a form of social contract whereby society supports those poor households that are ready to make the effort to improve their lives-‘the deserving poor’.

From the above arguments it appears that CCTs represent an important mechanism for improving health and nutritional indicators. Critics of CCTs however warn on the limitations within the approach and similarly point out three conceptual limitations with the approach which impinge on the effectiveness of CCTs as instruments for reducing poverty and improving human development indicators.

Ideologically, CCTs by their very nature induce a distortion on the consumption choices of individuals by forcing them to take certain actions rather than letting them decide on their own. It is assumed that if people are left to their own devices then they will somehow not be capable of choosing what is in their best interest. Such measures erode the agency of individuals and compel them to behave in ways that are ‘good for them’. This is especially relevant for programmes such as IMGSY which encourage women to seek institutional care as opposed to more traditional forms of heath care such as the Dai system. Traditional systems of delivery according to many feminists tends to be less evasive than institutional care which tends to disempower women treating their bodies as mere vessels ‘churning out life’.

A second problem with CCT schemes relates to fungibility of the conditioned commodity/service. The fundamental premise of conditionality is the distortion of choice from the individual optimal. However this very logic creates an automatic incentive for individuals to try and offset the loss of individual utility that the conditionality imposes. The ability of individuals to offset this distortion is the problem of fungibility. In cases where there is a close substitute individuals can offset the distortion imposed by the conditionality if she appropriately decreases consumption of or investment in the substitute, so that overall amounts are unchanged. In extreme cases this can mean decreasing the consumption of a close substitute (eating less spinach when given iron tablets), changing patterns of consumption (pregnant women from poor households covered by the IMGSY may seek to reduce their food consumption if they are assured of getting medical services), or even relocating investments in human capital within the household (sending fewer boys to school when girls are given a stipend).

Further using CCTs for increasing human capital investments could adversely affect equity while distortions required for self selection may impose an efficiency cost. For example the female stipend programme in Bangladesh led to an increase in the secondary school enrolment rate of girls. In the absence of any means testing, the programme had an adverse distributional impacts, the untargeted stipend disproportionately favoured the enrolment of girls from households with larger land wealth than land poor households. In the case of IMGSY which is based on self selection, equity concerns may be offset if the benefits of the programme are accrued by richer households as opposed to poorer ones. Using a CCT as a screening device for targeting also comes at a cost. Such cost can be either due to distortion in consumption and investment choices induced by the conditionality or as a result of under coverage.

Thus the debates rage on, but whether or not the CCTs represent the ideal mechanism at the end of the day, it's issues of implementation and accountability which determine the success of the programme, and those are the issues which need to be ultimately confronted and addressed.

Gayatri Sahgal is a Research Analyst at the Accountability Initiative.

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